IT vendor layoffs: The axeman cometh

Comment The IT vendor community in the United States was mostly immune from layoffs that happened over the course of 2008, when 2.6m people lost their jobs. But that is obviously changing as the global economy, which IT vendors depend on, continues to weaken. And this week the layoffs, some rumored and others announced, are actually happening.

Rather than make a formal announcement and cop to itself, to Wall Street, and its employees that it is making layoffs despite what it heralded as a stellar 2008, IBM is sticking to its practice of doing tactical "resource actions" within departments throughout its geographical regions.

This way, IBM can maintain that this is all part of its normal course of business and, perhaps more importantly (at least if you are an IBM shareholder), try to get Wall Street on board with the idea that despite the state of the global economy, Big Blue can bring $9.20 per share to the bottom line in 2009 and somewhere between $10 and $11 per share in 2010.

These numbers appear to be high, but again, given the stealth nature of IBM's cuts, it is hard to say. What we do know is that layoffs at IBM have begun, and IBM is not waiting until January 23, as the rumors from several weeks ago had suggested.

"Rumors were true," one Reg reader and IBMer wrote this morning. "The layoffs have started and IBM is still denying it to the press. Dozens of people at my location (about 150 employees here) received their pink slips today. They have 30 days to find a new job within IBM or they will be officially on the dole. I have also spoken to an employee at another location. Their entire group of 30 was given their 'resource action' notice today. Doesn't matter what IBM is saying publicly. It's happening."

Another IBMer wrote this morning, and she still had her job while many others did not:

"The axe fell today for quite a large number of IBMers where I work (Austin, TX - USA), not the 23rd. I would know because I am one of them. Of course this is after IBM posted revenues yesterday that exceeded $100 billion for last year. The best year they have had to date. I doubt anyone will notice what IBM is doing today because of all the left over inauguration news and their earnings report. Oh BTW - IBM's stock is up. That will make them happy and reassure them they are doing the right thing. Thanks for keeping it real."

Mark Loughridge, IBM's chief financial officer, said on Tuesday in a call with Wall Street analysts that in a normal year, it has somewhere between $300m and $400m in restructuring charges related to "workforce rebalancings", and then quickly added that IBM did a "little north of $700m" in 2008. Loughridge did not say how much in restructuring charges IBM would book in 2009, but he did say that given the revenue declines the company expected in the first half of 2009, layoffs - er, resource actions - would be front-loaded in the year.

If you assume IBM takes a $100,000 charge per employee on average and that the company will take the same $700m in charges, that should be around 7,000 employees, or about 1.8 per cent of its global workforce. The other rumor from a few weeks ago was that IBM's layoffs would hit its operations in the US particularly hard. IBM, of course, has no comment on any of this aside from the remarks made by Loughridge.

Intel seems to be facing reality a little more squarely than IBM, and is also facing a much harsher economic reality as the PC business implodes and server sales slacken. Intel reported alarming results for its fourth quarter last week, with sales down 23 per cent to $8.2bn and net earnings down 90 per cent to $234m, and this week decided to close five chip plants and layoff between 5,000 and 6,000 workers, which is between six and seven per cent of its 84,000 global workforce.

There is even talk that Intel might not be able to engineer breakeven, much less a profit, in its first quarter of 2009 - which is another way of saying a word that Intel hasn't heard since 1986, "loss" - but thus far Intel has kept to the party line that it is not providing guidance for Q1.

Sun Microsystems announced layoffs of between 1,500 and 2,000 back in May 2008 and then said it would cut another 5,000 to 6,000 back in mid-November 2008. That last cut would remove between 15 and 18 per cent of its 33,400 workforce, and the word on the street is that many of those cuts started to kick in last week and this week.

Back in early December, Sun shuttered its manufacturing operations in its Linlithgow, Scotland, giving the sack to 130 people. Sun says that it is consolidating its manufacturing of servers and storage in its Hillsboro, Oregon, facility, which is good news for at least between 83 per cent and 85 per cent of the employees who work there.

No word yet where Sun is making the latest round of cuts, but you can expect hardware and software development projects to take some hits and perhaps even some reshuffling of product lines. There is a lot of chatter about Sun killing off its high-end "Rock" UltraSparc-RK processors and their resulting systems, but this far, Sun will not comment on it other than to say - as John Fowler did back in November at the SC08 supercomputer show - that no changes had been made in the product roadmaps.

Of course, that was days after the layoffs were announced. This is now two months later, and the layoffs are happening.

This morning before the market opened, Microsoft announced that it would be cutting 5,000 jobs over the next year and a half; 1,400 employees were laid off this morning. Microsoft missed its Q2 revenue and profit projections. When Microsoft has to batten down the hatches, one of two things is happening, and maybe both: the economy is so bad that a Windows desktop monopoly and damned near a Windows monopoly on servers can't yield or somehow, more people are using Mac OS and Linux than any of us imagined. I think you know what is really happening, and I personally would prefer the latter rather than the former.

Just among these four IT players, that is a lot of people who are facing an empty box and 15 minutes on the clock to vacate the building. ®